We consider the economic implications of a compressed wage structure
which is exogenously determined by institutions. An important
feature of our analysis is that human capital is endogenous and can
be achieved either as formal education or as informal training within
firms after entering the labour market. While institutional wage compression
decreases the incentives of individuals to become educated, it
increases the incentives of firms to invest in training. As a result, the
net effects of wage compression on the aggregate human capital level
and GDP are ambiguous. Moreover, with wage compression, a skillbiased
technological change may cause wage inequality to decrease.
Keywords: Wage compression, training, education, inequality, institutions,
skill-biased technological change.
JEL: I21, J31, J5, O33.

Product Market Integration, Comparative Advantages and
Labour Market Performance*
In a two-country model with trade driven by comparative advantages, it is considered how
imperfectly competitive labour markets are affected by lower frictions in international goods
trade. Easier goods trading is equivalent to increased mobility of employment across
countries and thus a change in the trade-off between wages and employment faced by wage
setters. While the effects of product market integration on the trade-off between wages and
employment in general is ambiguous, it is shown that product market integration works like a
general improvement in productivity via the specialization it allows through trade.
Unambiguously, real wages and employment and welfare improve upon reductions in trade
frictions, and therefore workers are better off irrespective of whether the market power of
unions is enhanced or muted.
JEL Classification: F15, J30, J50
Keywords: trade frictions, wage formation, employment, welfare gains

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Skill-Biased Technological Change in Denmark:
A Disaggregate Perspective*
In this paper, we provide an industry-level analysis of skill-biased technological change
(SBTC) in Denmark over the last two decades. The analysis shows that SBTC has varied
considerably across industries, and traditionally large Danish industries have experienced
relatively less SBTC. This may partly explain why wage inequality between skilled and less
skilled has risen less in Denmark than in other countries. We also find that SBTC has been
concentrated in already skill-intensive industries. This contains important information about
future labour requirements, as the relative importance of these industries must be expected
to grow, thereby reinforcing the shift in demand for skilled labour.
JEL Classification: J24, J31, L6
Keywords: skill-biased technological change, Danish industries

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While examining the macroeconomic effects of increased government
control of the informal sector, this paper develops a two-sector
general equilibrium model featuring matching frictions and worker-
firm wage bargaining. Workers search for jobs in both the formal
and the informal sector. We analyse the impact of higher punishment
rates and a higher audit rate on labour market performance. We find
that a higher punishment rate reduces the size of the informal sector
and reduces unemployment. A higher audit rate has an ambiguous
impact on unemployment, and may actually increase the size of the
underground economy.
JEL-codes: H26
Keywords: Tax evasion, underground economy, matching, bargaining,
unemployment.